Peter Diamandis is a doctor and aerospace entrepreneur who understands human psychology. That’s why he invented the X Prize Foundation: to use competitions to create what he calls “radical breakthroughs” for mankind’s benefit. The original Ansari X Prize—a $10 million purse awarded in 2004 for the first private manned space flight—generated so much publicity that Diamandis claims the press coverage alone was worth $120 million.

Diamandis and his foundation have since raised millions more for competitions to clean up oil spills and create cars that get 100 miles to the gallon. They have also put up the largest technology prize in history—a $30 million award for the first private organization able to put a rover on the moon. Diamandis spoke with Technology Review about what he is trying to achieve.

Technology Review: What do you know about human nature that led you into the prize business?

Diamandis: Genetically, humans are wired to compete. We do it looking for a spouse, in sports, at work. Incentive competitions force people into a set of constraints with a clear target that gets them to solve a problem. Instead of thinking out of the box, it’s thinking in a smaller box.

Because if people attack a problem unconstrained, they are lazy. They use all the resources and the time and money they have access to. They play it safe. People don’t want to take risks. If you constrain the problem, time-wise or financially, most people will say it can’t be done and bow out. But those who say “Okay, I’ll give it a shot” have to brainstorm how they might do it. It forces them to look at the problem in a brand-new way. That would typically be very high risk. But in a competition, where if you win you feast, people are willing to take bigger risks. Given a large enough field of players, those who succeed will, by definition, have done something new.

If X Prizes were the only way to fund technology, what kind of technology would we end up with?

My answer is that it’s about creating a world of abundance. It’s about creating the breakthrough that will allow, not a life of luxury, but a life of possibility for seven billion people, with their basic needs being met in water, food, energy, and health care. It’s about solving the world’s grand challenges. There are billion-person-level problems that could be solved in a 10-year period if we had people focusing on it.

The amount of money needed to compete for an X Prize is pretty significant. Is this competition really just for the wealthy?

All the teams use the prizes, the theater of the prize, the notoriety of it, to incentivize investments. Before the Ansari X Prize existed, one of the conversations that would occur is “Will you fund my rocket ship?” And the majority of people said, “What, are you crazy? That is something that NASA does.” There was no external validation. In our oil cleanup competition, seven of the 10 teams that qualified were very small teams. They were mom-and-pop shops. One of them met in a Las Vegas tattoo parlor, but even so, they doubled what the oil giants had been doing for 20 years.

Given how fast technology is moving on its own, why do we need prizes at all?

Good question. One reason is to accelerate movement in a given direction. And the second, to use Clay Shirky’s term, is that there is a lot of “cognitive surplus” out there. How do you harness that to do something constructive and positive? We have the Qualcomm tricorder prize—it’s for a new generation of medical tricorders [like the devices on Star Trek that could analyze a person’s health without touching the body]. Those may come five or 10 years from now, but competitions help set regulatory standards, they help attract capital, they help focus entrepreneurs on specific goals. There are millions of people who are dying who may not need to if this sort of technology existed.

Qualcomm gave your foundation $20 million, but only half is for the prize winners. The other half goes to the foundation. Isn’t that a very high rate of overhead? Most research foundations give away nearly all their money.

I get frustrated when people do those comparisons. People who say “Why is your overhead so high?” don’t understand what is involved in designing and launching a prize, doing the public relations, the government relations, the judging, creating facilities to run the competition, and the validation of the results. With Qualcomm, we’ll run a whole clinical trial at the end. To compare it to a foundation that gives grants and says “Okay, here is your money—give us a report once a year” is bullshit.